Breaking Down a 'One Grant, One Loan' System

As calls for simplification within the nation's financial aid system have grown, many policymakers have been drawn to the idea of a "one grant, one loan" system that would streamline the many existing federal grant and loan programs into one each for students. But while the idea may seem appealing on the surface, finding a way to balance simplicity with access may prove difficult moving forward.

At an event hosted by Third Way on Wednesday, NASFAA President Justin Draeger – along with Jason Delisle, a resident fellow at the American Enterprise Institute (AEI), and Sandy Baum, a senior fellow in the Education Policy Program at the Urban Institute – discussed the intricacies of financial aid that should be considered before moving to such a simplified system, and the impact the change could have on students and institutions.

"This is something that over time, we in the financial aid administrator business have circled around many times," Draeger said. "And as we've circled it, I think some of the issues that we originally thought this would solve, we started second-guessing."

The entire idea behind a one grant, one loan system is to address the complexity of financial aid. But in order to work toward streamlining and simplifying aid, policymakers need to recognize that the financial aid system is so complicated, in part, because there are multiple funding sources for students and families, Draeger said.

"On the surface I think that makes a lot of sense," Draeger said. "[But] going to one grant, one loan doesn't do away with the largest source of financial aid, which is institutional aid, or state aid, or private scholarship providers. In short, it does simplify things for some students … but for a lot of other students, they're still going to have to apply for financial aid, they're still going to have to go to the school and get the award notification that combines all the disparate types of financial aid from various sources to come up with a net price."

Policymakers would also have to decide what to do with any leftover funds that result from a consolidation or elimination of other programs – eliminating the Federal Supplemental Educational Opportunity Grant (FSEOG) and redirecting the funds to the Pell Grant program, for example.

But part of the reason the system has become so complex over the years, according to Delisle, is that Congress has a tendency to add new programs without eliminating others that might overlap.

"They add, and they never take away because the advocacy world will make them pay dearly if they ever try to get rid of any program when they're adding a new one," he said. "[Advocates] will oppose any reduction in benefits if it's to get simplicity. That's the dynamic you have, and the politics you're fighting that these ideas and proposals around simplification are up against."

Moving to a simplified financial aid system would also bring in questions around access and what the federal government's role is in ensuring students have the opportunity to receive a quality education.

"The reality is that we have a diverse system with lots of different institutions with lots of different prices," Baum said. But it's not the federal government's job to ensure students who want to attend more selective or more costly institutions can pay for them, she added, noting that the distribution formula for FSEOG should be adjusted to better target funds.

Still, eliminating some programs would likely mean that some students would have a funding gap, Draeger said. Moving to a one grant, one loan system would need to be more comprehensive to address that issue – such as by having one federal loan, but with flexible borrowing limits so students don't face funding gaps.

Delisle, however, said he wondered if there would ever be a situation in which "simplification is more important than getting more money."

Could there be a situation, he said, where "simplification is so important that if there's a little bit of money that leaks out of the system out of some deal, but we get a lot of simplification because of it, is that worth it?"

Regardless of the details of how to develop and implement a one grant, one loan system, the political prospects for moving in that direction are unclear. While there is clear support for a simplified financial aid system among leaders in Congress – Rep. Virginia Foxx (R-NC) and Sen. Lamar Alexander (R-TN) have both openly expressed interest – the method by which lawmakers would approach the issue could vary.

Currently, both the House and Senate are working to make progress on budget resolutions that "may or may not" contain instructions for budget reconciliation – which could result in student aid changes coming in a "piecemeal approach," Draeger said.

"In an ideal world you would tackle this all in a reauthorization so that you could make adjustments to simplify, but also then maintain consumer protections, that you could provide flexibility for schools, and that you're not working against other policies that you're also proposing like accountability," he said.

Editor's Note: An earlier version of this article stated that Ms. Baum suggested the distribution formula for Pell Grants should be adjusted to better target funds. This article has since been updated to reflect that she was actually referring to the distribution formula for FSEOG.

Publication Date: 10/12/2017

David S |
10/12/2017 11:36:48 AM

The complexity in financial aid is not that Pell and SEOG exist simultaneously. It would be one thing if there were separate applications for the 2 grants or drastically different eligibility criteria, but that's not the case. Senator Alexander, Congresswoman Foxx or any of their supporters such as Jason Delisle have yet to convince me that they're not simply using the banner of "simplification" to justify cutting Title IV expenditures (while in general supporting tax cuts for the wealthy). You want to cut SEOG? Add the money - every year - to Pell. Don't let that money "leak out of the system." There's no reason it needs to.

Jose E |
10/12/2017 9:13:44 AM

I fear that all of these contexts are eliminating the voice of the graduate and professional student. Although this concept would be practical for the undergraduate student, it is not so for the graduate and professional student who relies so heavily on the current system to finance their educations. In the case of a medical student where we have a maldistribution of minority doctors and access is key, especially for those who would not be able to get the education if it were not for the Federal Unsub Stafford Loans and Grad PLUS Loan combination.

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